Drop in shadow inventory seen as positive sign

Residential shadow inventory is on the decline, falling in July to 1.6 million units and representing a supply of five months, according to a new report from CoreLogic.

One year ago, nationwide shadow inventory stood at 1.9 million units, marking a six-month supply. Shadow inventory is 22 percent lower than the peak reached in January 2010 of 2 million units – or 8.4 months of supply.

CoreLogic calculates shadow inventory by taking into account the number of distressed properties not yet listed on the multiple listing services that are more than 90 days delinquent, in foreclosure, and real estate owned by lenders.

“The steady improvement in the shadow inventory is a positive development for the housing market,” says Mark Fleming, chief economist for CoreLogic. “However, continued price declines, high levels of negative equity, and a sluggish labor market will keep the shadow supply elevated for an extended period of time.”